Iraq Threatens Emirates And Kuwait on Oil Glut

By YOUSSEF M. IBRAHIM, Special to The New York Times

Published: July 18, 1990

CAIRO, July 17—
President Saddam Hussein of Iraq today openly threatened to use force against Arab oil-exporting nations if they did not curb their excess production, which he said had weakened oil prices and hurt the Iraqi economy.

The Iraqi leader did not mention particular countries by name in his nationally broadcast address today, but his warning was clearly aimed at Kuwait and the United Arab Emirates.

In the last few weeks, the Iraqi oil minister, Issam Abdul-Rahim al-Chalaby, has frequently singled out the two Arab nations, which have been producing oil at rates far above the quotas mandated by the Organization of Petroleum Exporting Countries, as the main culprits in the steep fall of oil prices in recent months.

American Influence Seen

President Hussein charged that the oil production policies of Kuwait and the United Arab Emirates had been the result of American influence, seeking to obtain cheap oil and harm Iraq, among other nations.

''The policies of some Arab rulers are American,'' the Iraqi leader was quoted as having said by news agencies from Baghdad. ''They are inspired by America to undermine Arab interests and security.''

President Hussein said, ''Iraqis will not forget the saying that cutting necks is better than cutting means of living.''

''O God almighty, be witness that we have warned them,'' he added. ''If words fail to protect Iraqis, something effective must be done to return things to their natural course and to return usurped rights to their owners.''

Mr. Hussein's threat is not being taken lightly in the Arab world. In response to the Iraqi leader's comments, two Arab officials said Baghdad might follow up on its threat with acts of terrorism or other forms of ''intimidation'' unless Kuwait and the United Arab Emirates abided by their production quotas.

The Iraqi leader's statements today mark the first time since the end of the Persian Gulf war that he has publicly threatened another Arab nation, although he was said to have issued a similar ultimatum in late June in a personal message to the Emir of Kuwait.

Both Kuwait and the United Arab Emirates provided financial backing for Iraq's eight-year war against Iran, which ended in an armistice in 1988. Two weeks ago, Iran and Iraq began to negotiate a final peace treaty with direct talks in Geneva.

Shifts in Area Underscored

President Hussein's threat, according to analysts and senior members of other Arab governments, underscores the shifts that have occurred in the region in the aftermath of the Iran-Iraq war and the importance the Iraqi leader places on the recent push for higher prices by three of OPEC's leading producers - Saudi Arabia, Iran and Iraq.

The speech by the Iraqi leader came a week after a group of OPEC oil ministers, including those from Saudi Arabia and Iraq, met to press Kuwait and the United Arab Emirates to restrict their production.

Indeed, the price of oil jumped more than $1.50 a barrel after that meeting, partly reversing a price slide of about $6 a barrel during the previous three months. Oil prices moved little today in response to President Hussein's comments.

To be sure, OPEC has failed many times before to force Kuwait and the United Arab Emirates, two small and independent-minded countries, to rein in their oil output. But this is the first time in a decade the three largest military and political powers in the gulf, Saudi Arabia, Iran and Iraq, have joined hands to bring about a greater sense of discipline to OPEC.

Agreement Stressed

After last week's session in the Saudi Arabian seaport of Jidda, the Saudi oil minister, Hisham M. Nazer, took the highly unusual move of declaring that the United Arab Emirates had agreed to end two years of unrestrained production at the rate of about 2 million barrels of oil and limit its output to 1.5 million barrels a day.

Furthermore, in what is seen as another pointed remark, Mr. Nazer said that the agreement followed a phone call from King Fahd of Saudi Arabia to the president of the United Arab Emirates, Zayid bin Sultan al-Nuhayan, putting the Saudi monarch's prestige behind the Saudi edict.

The two countries are members of the Gulf Cooperation Council in which Saudi Arabia plays the role of military and economic godfather vis-a-vis its smaller allies, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates.

These developments have come just before an important OPEC meeting in Geneva, set for July 25, where the group hopes to set a higher oil price target and end the recent slide in prices.

Annual Revenues Reduced

The new resolve of the big producers follows a warning from Iraq a few weeks ago that cheating by the United Arab Emirates and Kuwait has flooded oil markets, weakened prices and severely reduced Iraq's income, which the country considers a vital interest. With every drop of a dollar in the price of a barrel of oil, Iraq's annual oil revenues are reduced by $1 billion.

The declaration by the Saudi oil minister was seen as significant because it suggested, said one senior Arab official who asked not to be identified, that the United Arab Emirates could not expect any military protection from any member of the Gulf Cooperation Council if it returned to its overproduction policies.

Over the last three months, oil prices dropped by about $6 a barrel, to near $16 a barrel, before rebounding in the last week or so, as both the United Arab Emirates and Kuwait produced close to 2 million barrels of oil a day, raising OPEC's overall output to 23.5 million barrels a day.

Open Iran-Iraq Alliance

In the last two weeks, Iran has struck an open alliance with its once bitter enemy Iraq in putting pressure on all Arab oil-rich countries to observe the OPEC quota system.

Ever since the Iraq-Iran war began in 1980, the rivalry between both military powers in the Persian Gulf prevented the maintainance of a unified production and pricing policy within the 13-nation OPEC group.

Iran's oil minister, Gholam Reza Aghazadeh, underlined the new alliance in a statement to the Iranian news agency, Irna, on Monday in which he said, ''Concerning oil policies, our views conform with those of Iraq.''

Part of the tacit deal that was concluded in the Jidda meeting last Thursday was to grant the United Arab Emirates the right to produce more oil than its official quota but less than what it was requesting. A senior Arab oil official who participated in the talks said any further infractions of the production quota by Kuwait would ''not be tolerated'' by Saudi Arabia. That, said the Arab official, who asked not to be identified, suggested that Saudi protection would not be extended to Kuwait in the face of Iraqi anger at the breaking of quotas.

Under the new proposal that will be put forward at the OPEC meeting in Geneva, both Kuwait and the United Arab Emirates could each produce no more than 1.5 million barrels a day.

Favorable Price Reaction

Since the Jidda declaration, oil prices reacted favorably to what oil analysts said was the new resolve in OPEC to push prices up. ''A strong consensus has emerged that prices should be above $18 a barrel,'' said OPEC's president, Sadek Boussena, Algeria's oil minister, who played a major role behind the scenes to create the accord among the big three OPEC oil powers, Saudi Arabia, Iran and Iraq, and Kuwait and the United Arab Emirates on the other hand.

Beyond the political pact, there seems to be within OPEC a real desire to push oil prices to at least $20 a barrel and possibly, as Iraq has asked, to as much as $25 a barrel over the next couple of years.